In the aftermath of World War II, the United States was considered the world’s hegemon. It had the world’s strongest military, the biggest economy, and most importantly, the US dollar had become the world’s reserve currency. Fast forward to today and many in the US still believe that the US is second to none over 75 years after the end of the war. But to many both here and around the world, it is clear that the US has declined.
As a result of loose monetary policy, debt-fueled government spending, and intervention in foreign conflicts around the globe, the US government has put itself in a position in which both its political and economic influence is waning. Many of us have watched apprehensively over the past several decades as the national debt continues to increase, the value and purchasing power of the dollar continues to drop, and other countries have begun to develop plans to circumvent the US dollar and the US financial system.
With the political and economic developments that have taken place since the 2008 financial crisis, and which have really accelerated over the past year, it seems as though the US has begun to decline at an accelerated rate. That has many worrying that this country could be turning into a banana republic sooner than we realize.
Some of the characteristics of a banana republic include highly stratified social classes, in which a ruling class concentrates land and wealth into its own hands while trying to keep the lower classes under control. It features a system of state capitalism, almost fascist in its makeup, in which government and industry collude to enrich each other. In a banana republic, climbing the ladder in politics or the military is one way to achieve wealth and status and to enter into the ruling elite. And if things don’t go the way the elite wants it to, the military can always step in to topple the government and establish its own rule.
How Many Characteristics of a Banana Republic Does the US Share?
While our “leaders” in Washington would likely scoff at the idea of the US becoming a banana republic, that’s probably because they’re living in the past, oblivious to the reality of life in the US today. They’re also likely insulated from the life of the average American, which is becoming more expensive and debt-burdened each year. So they don’t realize that the US is increasingly developing the characteristics of a banana republic.
1. Social Stratification
Social stratification in this country comes in the form of wealth inequality. The rich keep getting richer and the poor stay poor. Meanwhile, the middle class keeps shrinking, as opportunities for asset accumulation, wealth growth, and social advancement continue to shrink.
One of the root causes for this in the United States is easy money. Because of loose monetary policy and the mechanics by which money is injected into the financial system by the Federal Reserve, the politically connected such as government contractors, Wall Street banks, and other cronies see the benefits of new money first, before prices rise. They’re the ones who get to take advantage of being able to borrow money at the lowest interest rates. The rest of us see the effects of easy money in the form of higher prices before we see a penny of any of that money.
The upper classes also make a significant portion of their income from investments, while the middle class largely relies on labor income with a smattering of investment income, and the working class rely solely on labor income, with a smattering of government handouts. Since the Fed’s monetary policy boosts the performance of stock markets and other financial assets, that boosts the income of the rich significantly and does little or nothing to help the poor and middle class. The more money the Fed creates, the worse income inequality gets, and the closer our society gets to resembling a banana republic.
2. State Capitalism
We like to think of our economy as a free market economy, but it’s not, and hasn’t been for a long time. From almost the moment this country was founded, there has been conflict between those pushing for free markets and those pushing for government intervention. The Constitution itself could be considered a coup against free markets on behalf of government interventionists, and the ensuing centuries have seen more and more government encroachment on market activity.
Things really came to a head in the 1930s, when President Franklin Delano Roosevelt implemented the New Deal. His policies were based on those of Mussolini, so it’s not at all wrong to characterize the post-New Deal economy as being fascist in its origins. We have a facade of private ownership while government really calls the shots. And in order to succeed in business, you have to stay on the good side of government regulators. Cross the wrong people and your business will be shut down, as we’ve seen time and time again during this COVID crisis.
The bailouts that we saw during the 2008 financial crisis are a shining example of the type of crony capitalism that exists in the US today. Instead of letting banks fail like any bankrupt, poorly run company should be allowed to do, the US government created a $700 billion fund to bail out the financial sector. Then the Fed jumped in with trillions of dollars of asset purchases and loans.
You’ve probably heard the phrase “privatizing profits and socializing losses.” That’s exactly what happened with the bailouts, as banks kept all their profits, but pushed their losses onto the government. Then, because they had had their losses covered, they went ahead and forgave everyone who borrowed from them. Oh, wait… no, they didn’t.
Banks promptly forgot that the government had saved them and proceeded to foreclose on many of their borrowers. Many foreclosed homes were then purchased by investment firms at rock bottom prices using the cheap money that the Fed had created, building up massive real estate portfolios. Those homes then became rental properties, thus decreasing the number of single family homes available to sell on the market and ensuring that more and more in the middle class would remain part of the renter class and not homeowners. That’s part of the continuing evolution of the US middle class from property owners able to improve their position in life by accumulating wealth to a permanent renter class constantly unable to save and invest since they’re paying rental income to mega-corporations who benefit from the Fed’s easy money policies.
One might be forgiven for thinking this is merely incidental and unintentional. As we learn more and more about what the ruling class really thinks of everyday Americans, and the global elites’ plans for the “Great Reset,” this plays right into their plans, ensuring that middle class Americans will be permanently expropriated. As they’ve coined the phrase, “you will own nothing and you will be happy.”
3. Monetary Devaluation
One of the other hallmarks of banana republics is their chronic monetary instability. Their governments constantly attempt to use monetary manipulation to achieve their policy goals, and as a result the value of the currency is driven downward through constant devaluation.
The US dollar has been the victim of devaluation for over a century, ever since the Federal Reserve System was created. It has lost 99% of its value versus gold since that time, with much of that drop coming after 1971, when President Nixon severed the last link between the dollar and gold.
With trillions of dollars of new money having been created over the past year by the Fed, and the national debt rapidly approaching $30 trillion, the dollar’s status as the world’s reserve currency could be in jeopardy. There’s only so much that other countries will take before they decide to switch to using other currencies and rejecting US government debt.
For decades the Fed has enabled Congress to run massive deficits and build up an enormous national debt that will likely never be paid off. But such fiscal and monetary malfeasance can only go on for so long. We’re starting to see some of the effects of that, as inflation is starting to rise once again, debt levels have exploded since 2008, and the dollar risks being devalued into worthlessness.
4. Economic Crises
Banana republics suffer from chronic economic instability, constantly lurching from crisis to crisis. While the US hasn’t seen the frequency of crises that you would expect from a banana republic, that could change.
The 2008 crisis was a severe one, and the lockdown-induced crisis we saw last year was also severe. Now we’re dealing with the effects not only of the lockdowns, but also of the response to the lockdowns, in the form of inflation.
Combine product shortages with high prices, throw in a little bit of ransomware to throw a wrench in gasoline supply, and you start to return to a situation reminiscent of the 1970s. In the United States we’ve been used to being able to buy what we want when we want it, so the idea of having to go without will be a rude awakening for many people. You can almost guarantee that millions of people aren’t going to react well to what’s coming.
5. Political Instability
While we’ve been lucky in the US to have relative political stability, the last four years have been somewhat of an anomaly. Democrats spent nearly the entirety of Trump’s term trying to boot him from office using every trick in the book, without success. Now President Biden is trying to preside over a country that has become more politically polarized than ever.
When one half of the country decries the other half as racist, homophobic bigots who deserve to be rounded up and exterminated, it’s kind of hard to come to any sort of governing consensus or rapprochement. More and more Americans get the uneasy feeling that we’re on the verge of a civil war, with the groundwork being laid on social media and in the political realm. Adding fuel to that fire is the recent tendency of retired generals and admirals to start injecting themselves into politics, something that traditionally has never happened here and is more reminiscent of South American dictatorships.
If things explode, what will they look like? Will we look like Argentina, defaulting on debt and dealing with a rise in crime such as kidnappings for ransom? Will we look like Venezuela, spiraling downward into hyperinflation as store shelves are emptied? Or will we look like Yugoslavia, with hyperinflation accompanying a brutal campaign of ethnic cleansing? None of those potential scenarios are appealing to anyone who values peace or security.
How to Defend Yourself Financially
Most Americans are fat and happy, which is one reason we haven’t devolved into armed conflict. Despite rising prices and shortages, we still live comfortable lives in comparison to the rest of the world. But that could change.
People will begin to take action when they’re in one of two situations; either when they have nothing left to lose, or when they stand to lose everything. Given the direction this country is going, that could come sooner rather than later for many people.
So how do you protect yourself from losing everything? How do you defend yourself against losing the result of decades of hard work, saving, and investing? You take steps now to defend your wealth and your assets against the likelihood of loss.
For many investors today that means investing in precious metals such as gold and silver. Whether it’s investing in a precious metals IRA or making a direct purchase of gold and silver coins, gold and silver have protected thousands of investors over the years.
With a precious metals IRA, you can open up an IRA that holds physical gold or silver coins or bars. That precious metals IRA offers you all the same tax advantages as any other IRA, and you can even fund that precious metals IRA by rolling over or transferring assets from existing retirement accounts such as a 401(k), IRA, TSP, or similar account.
Since a precious metals IRA’s assets have to be stored with a depository, some investors prefer to purchase gold and silver coins that they hold themselves at home. You don’t get the tax advantages of a precious metals IRA, but you get the confidence that you own tangible assets that are valuable, portable, and that can help protect your wealth in the event of a societal breakdown.
Regardless of how you want to invest in gold and silver, the experts at Goldco are here to help you. Give Goldco a call today to learn more about how gold and silver can help protect your financial safety and security no matter how bad the political and economic situation in the US becomes.